Technology and the state: Building capacity to tax via text

Abstract

The ability of the state to collect tax revenue is a crucial indicator in the process of economic development, yet the functioning of tax compliance in low-capacity countries remains poorly understood. Using a randomized evaluation, I study a simple text message reminder scheme implemented by the Uganda Revenue Authority, which increases tax compliance by 7%. This average effect masks substantial treatment effect heterogeneity by an index of the presence of public services, measured via a granular, nationwide dataset on government service provision. The finding that the treatment was most effective where the state is least present shows how digital technology can extend beyond the brick-and-mortar presence of the government, expanding the reach of the state.